Transnational Corporations and Network Effects of a Local Manufacturing Cluster in Mobile Telecommunications Equipment in China

The local formation, and benefits, of industrial clusters have received considerable research attention during the past decade. In some extreme versions, clusters are hailed as a universal panacea for local and regional development because of their alleged greater propensity to reduce transaction costs, to promote inter-firm learning, innovation, and knowledge transfer and, as a result, to increase local competitiveness. In this paper, we consider these possible economies of traded interdependencies as internal to peculiar clusters. They are developed within clusters and therefore less likely to be shared and available to noncluster firms. We argue, however, that there is another important aspect of cluster economies that is often underestimated in the existing literature – external economies of collective bargaining and production capacity accruing to firms in clusters, but deriving from traded relationships with institutions, firms and customers outside local clusters. We define these benefits as non-cluster economies of traded interdependencies among firms in clusters. These economies are external to those derived from within clusters through interaction among firms. To illustrate our arguments, we examine the formation in Beijing, China, of one of the world’s few mobile telecommunications manufacturing clusters. In particular, we show how Nokia, the lead firm in the local industrial cluster, is able to create non-cluster external economies for its key suppliers, co-located in this purpose-specific industrial cluster.